longstanding practice of Indonesia corruption has persisted over decades. It is a serious problem; one that really hinders business and investment.
Indonesia is a hot market for any foreign investor. According to global management and consulting firm McKinsey and Co, the nation's economy is set to exceed those of the United Kingdom and countries in Europe in 2030. In that time, there will be 135 million Indonesians in the consumption of the middle class and US $ 1800000000000 worth of market opportunities in the consumer services, agriculture and fisheries, natural resources, and education.
But before the race investors to put their money in the archipelago, there is a bump in the road serious to look out for: corruption in the Indonesian government. For those of you who are new to this country, while Indonesia is a market with huge potential, the archipelago has a long tradition corruption and graft. It is a real problem, and the negative effects can be easily observed in the way local businesses operate, and what is considered common in the world of investing in Indonesia. Corruption is also evil foreign investment in Indonesia, according to a 2012 report by Standard and Poor's.
Corruption in the public sector
When dealing with the Indonesian government, companies may be forced to participate in some "dirty work" (small bribes, facilitation payments, etc.) just to get things done. Entrepreneurs and investors should also be wary of wrongdoing occurring in the justice sector in Indonesia.
Research CenterThe U4 Norway-based anti-corruption demands corrupt business license is widespread in Indonesia. Whether they like it or not, local businesses are regularly forced to participate by paying extra just to get the license and the appropriate licenses. If companies take the official route, they may end up waiting for an indefinite period, or even worse, their applications could simply be rejected.
Corruption Commission of Indonesia Eradication (KPK) speculates that up to 30 percent of the contracts calls for the government offers could be corrupted.
Corruption usually occurs during the bidding process, when companies bid on projects. To win, companies often need to mark the value of the contract and set aside the profit margins just to pay civil servants. Because of this, honest businesses with better qualifications can not always win projects in Indonesia if their less qualified counterparts are willing to cross the line.
Even the Department of Justice has a reputation. The Index of Corruption Perception finds that Indonesians perceive the judiciary as one of the most corrupt institutions in the country. "It depends on how much money you have," said prominent lawyer Adnan Buyung to Indonesian The New York Times , arguing that the investigation, prosecution and trial of cases in Indonesia follow more rules dictated by the free market intermediaries by the current law.
The Indonesian police regularly divert money and receive "incentives" to conduct further investigations. The Times official recently quoted retired Aryanto Sutadi, which estimates that 25 percent of police officers broke the law at one time or another to earn extra income.
Foreign investors should remain diligent
Specifically for foreign investors, issues related to corruption should be taken seriously. While conglomerates are able to make short cuts in Indonesia, the effects can be considerable. For example, Singapore and Malaysia have what is called an "extraterritorial effect" to their local laws to fight against corruption. What this means is that the acts confirmed for corruption committed abroad can still be treated as if the offense took place at national level. So while Singapore and Malaysian entities may find it easy to cut corners in Indonesia to grow their business by participating in payments of bribery or facilitation may ultimately cost them their livelihood and reputation to the House.
Foreign Corrupt Practices Act of the United States (FCPA) goes as it prohibits not only American companies but also companies affiliated with the US government officials of corruption everywhere a little further. In December 2014, the Ministry of Justice of the United States punished three officers of the French energy company Alstom SA, ordering them to pay a of US $ 772 million criminal penalties for corruption of government officials in several countries. Two occurrences happened in Indonesia. Before that, US regulators sentenced to a fine German insurance Allianz SE $ 12.3 million for the corruption of the Indonesian government officials.
The prospect of receiving heavy fines and damage to reputation played an important role in determining whether foreign firms want to try their luck in Indonesia. If foreign companies plan to expand through acquisitions in Indonesia, then it is probably wise to increase efforts with due diligence. The last thing a foreign company wants is to be guilty by association, unconscious, after the fact.
How can we fight this?
KPK Building by Charles Wiriawan
Fortunately, Indonesia seems to be slowly heading in the right direction as regards the fight against corruption. There are more than two decades, the government established the KPK. Over the years, the organization has convicted several top politicians. Last month, the chairman of the Investment Coordinating Board in Indonesia (BKPM) said Franky Sibarani Tempo that it intends to work more closely with the KPK to fight against corruption in the sector investment.
Under the new leadership of Pesident Joko Widodo, the government aims to be more transparent. Government agencies are beginning to use a one-stop online solutions for treating things like permits and tenders. With the system in place, there are now fewer contact points for bidding companies, and therefore fewer opportunities for officials to get their palms greased with so-called facilitation payments.
Investors interested in Indonesia would do well to go to the one-stop integrated service created by the BKPM.
Officially launched last month, the service aims to eliminate costly red tape for entrepreneurs and investors. Candidates can now treat 134 different licenses to 22 ministries and institutions. In an effort to ensure transparency, BKPM also allows candidates to follow the progress of their licenses online.